controversy over refinery
$600 million crude oil refinery cum power plant complex proposed
to be built at the Sapugaskande refinery site of the Ceylon Petroleum
Corporation (CPC) has left industry watchers scratching their heads
over the viability of the project.
promoters describe it is a winner for the CPC, allowing it to make
the best use of under-utilised assets.
Kumaratunga has blasted the proposal, accusing the government of
violating tender procedure and seeking to privatise the CPC, and
saying that it was an unsolicited one for which no competing or
counter-proposals had been called.
But Power and
Energy Minister Karu Jayasuriya told parliament last week that the
government had no intention of privatising the CPC and that Cabinet
approval had been sought merely to do a study that had been approved
by the Board of Investment and the Prime Minister's office.
declined comment saying that it came under the Public Enterprises
Reform Commission. PERC officials were not available for comment.
to the project promoters said the proposed refinery's capacity would
be 75,000 barrels per day (bpd) and the size of the power plant
aims to make use of under-utilised CPC assets such as the offshore
mooring buoy to unload oil tankers, four crude oil storage tanks
at Orugodawatte and land at Sapugaskande.
are not used to their optimum capacity because of the small size
of the CPC's refinery, which can refine only about 50,000 bpd.
said the refinery would supply fuel to the power plant. "That's
how it becomes viable," one source said. Excess refined products
would be sold in the local market and given as bunkers to merchant
shipping for which there is a big demand.
The CPC said
in a statement that it would seek Cabinet approval to set up the
refinery and that the government had already chosen Global Energy
and Industrial Operation Inc. (GEIO) to manage the project. The
CPC expects to earn around $10.7 million each year under the 20-year
lease at the end of which the leased land and assets of the refinery
would be transferred back to the CPC.
GEIO was negotiating
with two foreign companies and several local blue-chip conglomerates
to raise funds for the project, the statement said.
experts said there were questions about the feasibility of the refinery
project, given its relatively small size, the poor refining margins
that were troubling the industry the world over, and the current
refining over-capacity in the region.
out that the CPC's own plans to double the capacity of its refinery
at Sapugaskande had been shelved because it was found to be uneconomical.
margins are low right now so the environment for a new refinery
does not look very good," one expert said. But, he added, the
project could be viable because it is associated with a power plant.
The island is facing a severe power crisis and demand for power
would only grow, especially if the peace talks succeed and result
in an economic boom, he said.
said the Indian Oil Corporation, which recently clinched a deal
with the CPC to lease the latter's tank farm in Trincomalee and
acquire over 100 retail outlets, had not shown interest in the refining
side of the business because of excess refining capacity in India,
as well as in Singapore and the Arabian Gulf.
was not interested," he said. "With so much of refining
capacity in India it was not viable to start a refinery here unless
there's a tie-up with the Ceylon Electricity Board for a long term
with the project said one of the key players was a Sri Lankan petroleum
expert, a former director of the CPC and advisor to the World Bank,
who had been promoting a huge refinery project and power plant in
Hambantota with the backing of foreign oil majors in the early years
of the People's Alliance government.
GEIO had been set up by this expert to run the project.
in a statement last week described GEIO as an "entirely unknown
She said the
Power and Energy Minister had "presented a proposal to the
Cabinet that essentially sought to privatise the CPC through a lease
of its operating assets to an unknown entity styled Global Energy
and Industrial Operations (GEIO) Inc.
essentially envisaged a close co-operational and financial relationship
between GEIO and the CPC on terms extremely favourable to GEIO.
and procedures followed with regard to the proposed lease of the
CPC assets completely violate all accepted procedural norms of good
governance and public accountability," she said.
majors slam govt policy
Government policy in liberalising the retail petroleum
market is vague and does not appear to be handled in the best interests
of the country and the development of the industry, one of the oil
majors said last week.Kishu Gomes, Managing Director, Caltex Lubricants
Lanka Limited (CLLL), told Sunday Times FT that the way in which
the policies are being implemented may not be attractive for any
oil majors to invest here. At this point, Mobil, BP and Castrol
are not interested in entering this sector, while Shell's intentions
are still not clear, he said.
we (Caltex) don't mind looking at it provided the prospects are
good", said Gomes. Oil companies were unhappy with the way
in which Ceylon Petroleum Corporation outlets had been earmarked
for the Indian Oil Corporation. Since all CPC outlets are not profitable
this leaves an unfair share for the prospective third player, he
fuel market has thin margins and Sri Lanka's market is small, with
a total demand of 65,000 barrels per day of which only 20,458 bpd
come from retail channels, Gomes said. If the outlets are not distributed
in a fair way it would not provide a big enough return for oil majors
such as Caltex to invest in the local market, he said.
would have to make heavy investments to upgrade existing outlets
and maintain high standards and this would be profitable only if
the conditions for entry are fair, he said. There were serious environmental
concerns with some of the tanks in the outlets being as old as 78
years. Local representatives for Shell, ExxonMobil, BP and Castrol,
Servo, Valvoline, and the LPG marketer Laugfs have developed a framework
for the liberalisation of the local fuel market.
Its main recommendations
were that the market should be opened to a maximum of three private
investors, establishment of legislative and regulatory framework
prior to liberalisation, "exclusive licensed wholesaler"
status for successful investors, and a mandatory stake/investment
in a supply terminal. It also said there should be no political
interference and suggested a market price formula and for the CPC
to phase out its domestic marketing of petroleum products within
3-5 years of liberalisation. It also recommended that the aviation
business be divested as a separate business unit, as this would
result in better value to the government.
market bulls seen losing steam
indices on the Colombo bourse rose sharply last week on goods news
on the peace front with savvy market players making a killing by
selling stocks whose prices were driven even higher by retail investors
who followed in their wake, but brokers said a correction looked
inevitable this week.
Stock Exchange registered its highest turnover for the year last
week and the third highest ever as the all share price index crossed
the 800-mark after five years.
The ASPI closed
at 838.9 on Thursday and the Milanka at 1,449.9.
the market is at its peak," said Dushyanth Wijayasingha, head
of research at Asia Capital. "The possibilities of a correction
and a cooling off period are much greater now."
research analyst at HNB Stockbrokers, said: "The peace dividend
may take time to materialise but people are already reacting to
the news on the initial peace talks."
solid progress in the peace process and a robust economic recovery
would be required to sustain the market over the longer term.
Buying by high-profile
investors like Dhammika Perera and cricket star Aravinda de Silva
prompted retail investors to buy stocks they were said to be keen
on, brokers said.
market has overheated," said one broker. "In the last
few weeks it has just jumped up like hell on news about the peace
talks. Retail investors have just blindly bought shares."
one of the rich individual investors whose transactions are followed
with much interest by retail investors,
big chunk of Central Finance shares he had bought earlier at a profit
during last week's rally.
quite a buck on that," one broker said.
shares fell to Rs. 88 at the close on Thursday after peaking at
Rs. 100 on Wednesday when over a million shares changed hands.
the market to resume its gallop after the bout of profit taking
with more upbeat news on the peace front and the prospects of big
doses of foreign investment in the months ahead.
of people are waiting to buy when the market drops," said Premaratne
of HNB Stockbrokers.
we need is for the market to get listed in the Morgan Stanley Capital
International (MSCI)," said Shafi Wahid, a broker at DFCC Stockbrokers.
"When that happens you'll get foreign investments in Sri Lanka."
MSCI removed the Colombo bourse from its regional equities indices
last year owing to its small size.
Wijayasingha said the bull run was driven by optimism among investors
about the success of peace talks between the government and the
LTTE in Thailand.
was driven largely by retailers and selected high net-worth individuals,
with limited foreign interest.
and the corporate sector are now on the recovery path. Valuations
are still at the lower end of what we'd seen in the past,"
he said. "This was supported by positive sentiment."
But, he added,
foreign buyers need to come in to sustain the upward trend.
probably want more clear indications on peace before investing here
in a big way," Wijayasingha said.
said the market could get another boost if the prime minister's
meetings with top American businessmen result in US firms deciding
to invest in the island.
Diaspora keen on investing here
While Prime Minister Ranil Wickremesinghe
last week urged the international community in New York to invest
in Sri Lanka "now" rather than "later", a cross
section of the country's business community pleaded for support
from the Sri Lankan Diaspora.
an excellent dinner function with a varied section of the Sri Lankan
Diaspora," said a delighted Neela Marikkar, spokesperson for
business-peace group SriLankaFirst, on Friday.
The Sunday Times FT by telephone just as the dinner ended, the Sri
Lankan advertising executive - who helped start the business peace
initiative along with Jagath Fernando, deputy chairman of John Keells
and other top business professionals exactly one year ago - said
members of the Diaspora are upbeat and looking forward to investing
in their motherland.
looking good for Sri Lanka. The prime minister's visit is an enormous
success and has boosted investment prospects in our country,"
she said, adding that SriLankaFirst was planning "Invest in
Sri Lanka" roadshows in Europe and Asia mainly targeting Sri
Lankan businesspersons living abroad. A similar roadshow is also
planned in Colombo.
address to the UN General Assembly was very effective, according
to UN sources in New York. "It was articulate, succinct, upbeat,
statesmanlike, with even occasional humour thrown in," one
UN source said adding that UN officials were also happy about the
premier's gracious acknowledgement of UN support both in Sri Lanka
and New York towards the peace initiative.
Wickremesinghe said the premier was pleased with the results of
the trip and his one-on-one meetings with the Chinese Foreign Minister,
the Indian Prime Minister, billionaire investor George Soros, Frank
Wisner, CEO of insurance giant, AIG, as well as with the UN Secretary
The UNDP gave
high priority to the visit to the extent that Mark Malloch Brown,
head of UNDP, postponed a long-planned speaking trip to Oxford to
organise the UN part of Wickremesinghe's schedule and make sure
nothing went wrong, in addition to meeting the premier, informed
Among the organisers
of the SriLankaFirst dinner on September 19 in New York which coincided
with the group's first 'hands-for-peace' initiative in Colombo,
was Raj Rajaratnam, the Sri Lankan-born investor based in New York
who has generated much attention with his forays into the Colombo